“Sender-pays” rule doesn’t necessarily increase telecom investment

We recently made the case against a proposal to institute a "sender-pays" rule for Internet interconnection. The idea was submitted by European telecom incumbents and it's under discussion at this week's International Telecommunications Union confab in Dubai. Telecom incumbents love this because it could force Google, Netflix, and other major Internet services to pony up more cash. They argue they need these revenues to fund network upgrades and keep the Internet working smoothly.

A new study from the Mercatus Center at George Mason University, a libertarian think tank, casts doubt on this argument. There has never been a sender-pays Internet, so we can't be sure what it would look like. But the international telephone network does operate on a sender-pays model. And Mercatus economist Eli Dourado realized this system could provide insights about how the same billing scheme might work online.

To do this, he collected statistics about international calling rates from the United States, as well as statistics measuring the growth of various nations' telecommunication sectors. If the advocates of sender-pays were right, we might expect countries with high long-distance calling rates to experience faster development of their communications networks than countries with low rates.

Dourado charted international billing rates against four statistics that measure the development of telecommunications networks: fixed telephone lines per 100 people, mobile subscribers per 100 people, Internet users per 100 people, and broadband subscribers per 100 people. Dourado found little correlation between long distance rates and fixed telephone line construction. For the other three variables, he found a negative correlation. The higher a nation's long-distance rates were, the slower the pace of progress in its telecommunications sector.

Of course, correlation is not causation. The observed correlation could be based on other factors, such as a country's average income or its region of the world. But Dourado found that even after controlling for these factors, there was an inverse correlation between long-distance billing rates and telecommunications development. In short, when you give a telecommunications firm more money, there's no guarantee it will invest the cash in improving its network.

The paper also considers the possibility that causation could run in the opposite direction: maybe network upgrades make lower rates possible. To check this possibility, he re-ran his regressions on a year-to-year basis, incorporating a lag to reflect the fact that one year's higher rates could lead to higher investment in subsequent years. "If high rates today are used to fund expansion in the future, then lagged values of the rate coefficient should be positive—that is, high rates today should correlate with high growth a few years from now," Dourado wrote.

Yet even after making these adjustments, the correlations were still negative. The more expensive it was to make long distance calls to a nation, the more slowly its telecommunications sector developed.

"My results contradict the hypothesis that the ability to charge more for international Internet traffic is all that is needed to build out telecommunications infrastructure in poor countries," Dourado concludes. "High international telephone collection rates have not led to greater buildout and adoption of telecommunications infrastructure in the past two decades. It seems unlikely, therefore, that adopting a sender-pays model for Internet traffic would increase buildout of Internet infrastructure today."

Rather, Dourado suggests the quality of a nation's telecommunications network is dependent on the quality of its domestic institutions. Some countries have telecommunications industries that efficiently put new revenues to work on network improvements. Other countries have corrupt or incompetent telecommunications incumbents that will upgrade their networks slowly no matter how much money they're given. He argues that regulatory reforms, not more cash, are needed to improve global network quality.

Disclosure: The Mercatus Center paid me to contribute a chapter to a new book on copyright reform. Readers can view my full disclosure statement here.

I'd be curious to know why Canada is such an outlier from this trend...

It's probably because nearly all our long distance phone calls go to the US which probably has cross agreements and low low charges. Europe is different, when Canadians go to Europe it is crazy expensive compared to going to the US. We are charge little to nothing when going throughout Canada, usually just minutes.

If you assume that a phone call works just like a web site visitI, the sender, already do pay, since I/my browser initiated theconnection.Doesn't matter if I only supply 0.1% of the words, I'm still thecaller.

"Telecom incumbents love this because it could force Google, Netflix, and other major Internet services to pony up more cash. They argue they need these revenues to fund network upgrades and keep the Internet working smoothly."

Telecom incumbents love this because they need more profits to make their stock investors happy. GREED. Nuff said, end of story.

I'd be curious to know why Canada is such an outlier from this trend...

It's probably because nearly all our long distance phone calls go to the US which probably has cross agreements and low low charges. Europe is different, when Canadians go to Europe it is crazy expensive compared to going to the US. We are charge little to nothing when going throughout Canada, usually just minutes.

The US and Canada are effectively a single phone system. That's why the country code for each is 1, they both have three-digit area codes, and they have the same dial-out code of 011. A bunch of Caribbean countries are in the system, too.

Apparently the Telco rule is to mess with anything that works until it is broken, and then rake in lots of private and public money to pretend to fix it.That used to be called racketeering, and law enforcement used to prosecute it. Too bad they are too busy now arresting file sharers and beating up peaceful protesters.

The US and Canada are effectively a single phone system. That's why the country code for each is 1, they both have three-digit area codes, and they have the same dial-out code of 011. A bunch of Caribbean countries are in the system, too.

The worldwide phone system is effectively a single phone system, in the sense that it's all interconnected. The US, Canada, and the other countries on the same numbering plan share a country code, but it's still up to their respective telcos to negotiate billing arrangements.

I suspect the main reason that calls between the US and Canada tend to be free on many calling plans is that the per-minute costs are low enough that the carriers can afford to provide unlimited calls to either country. It's not a necessary consequence of the fact that both countries use the same number plan.

Many people have already heard about the libertarian billionaire businessmen brothers Charles and David Koch who have helped to found and/or fund a number of non-profit organizations and think tanks. {...}

What many people may not be aware of is the number of academic centers/institutions that the Kochs are also helping to fund at both public and private colleges and universities—including {} the Mercatus Center, a conservative think tank located at George Mason University in Virginia. {...}

Thomas McGarity, a University of Texas law professor who specializes in environmental issues, described the [Mercatus Center's] strategy: “You take corporate money and give it to a neutral-sounding think tank,” which “hires people with pedigrees and academic degrees who put out credible-seeming studies. But they all coincide perfectly with the economic interests of their funders.”

In a public comment to the U.S. Environmental Protection Agency on vehicle emissions, the Mercatus Center suggested that global warming would be, "beneficial, occurring at night, in the winter, and at the poles. If a slight warming does occur, historical evidence suggests it is likely to be beneficial, stimulating plant growth and making humans better off.

(emphasis mine)

[Edit: I'm very familiar with the Ars posting guidelines and I don't get why there are a few downvotes on this. DarkAdmin had some confusion about how my comment was germane - I hopefully cleared it up in a reply down below. Just trying to help point out that studies by certain think tanks aren't always what they seem. Also, just to clarify, I'm not in any way suggesting that Tim Lee, the author of this article, is being duplicitous or on the take.]

The US and Canada are effectively a single phone system. That's why the country code for each is 1, they both have three-digit area codes, and they have the same dial-out code of 011. A bunch of Caribbean countries are in the system, too.

The worldwide phone system is effectively a single phone system, in the sense that it's all interconnected. The US, Canada, and the other countries on the same numbering plan share a country code, but it's still up to their respective telcos to negotiate billing arrangements.

I suspect the main reason that calls between the US and Canada tend to be free on many calling plans is that the per-minute costs are low enough that the carriers can afford to provide unlimited calls to either country. It's not a necessary consequence of the fact that both countries use the same number plan.

Sorry for operating below Ars-level precision The systems with the common numbering plan have a long history of intetrconnection and function as if a single system (no need to dial the 011 escape sequence). Every one of the local telcos can operate its own tariff rates. For the longest time, international calls between the US and Canada were cheap while calls to Mexico were relatively expensive... although this does appear to be changing lately. I don't call Mexico, so I only hear about those rates sporadically.

A bit of a simple thought experiment for economics I've just thought of:

The higher your profit margins, the less incentive you have to change. I should do a paper on that, if I was the type of economist that worked hard enough to do that kind of thing and didn't have everything else in my life to do. Maybe some day.

A bit of a simple thought experiment for economics I've just thought of:

The higher your profit margins, the less incentive you have to change. I should do a paper on that, if I was the type of economist that worked hard enough to do that kind of thing and didn't have everything else in my life to do. Maybe some day.

If you have access to JSTOR, there were a series of review papers about this in the 1970s. If you whack-a-mole monopolies, then existing firms invest more but there are fewer entrants who bring the really big innovations (these entrants want that shot at monopoly). Don't have time to sift thru the thousands of citing papers to see what's happened recently in economics, but the short version is that your intuition is correct. 17-year patents are a compromise between allowing momentary and permanent monopolies. Originally copyright was similar, though a certain Mouse has fiddled with that system a bit too much.

This is really about money. There are technical and business solutions to the issue of "free rides" for content providers, each with their drawbacks that leave a bad taste in the mouths of ISPs:

Technical:Receiving too much traffic from a content provider? Traffic engineer the traffic through a higher latency path or traffic shape based on ASPATH. However, because of the way the internet works, content providers will Traffic Engineer around your attempts to traffic shape. Specifically, If i'm using performance based routing, my algorithms react to your increased latency by routing around it. In the end, if the traffic is destined for your AS, it will get there one way or another.

Business:Receiving to much traffic from a content provider? Make them a paid peer charge them by the number of bytes sent. The drawback here is that they will also make you a paid peer...and you get the extra overhead packet counting and billing.

In the end, a toll-based Internet will only provide a business advantage for ISPs that don't charge tolls. If only a few ISPs implement tools, we'll just traffic engineer around them. And as others have mentioned...Google ( and other content providers) are the only reasons people get on the Internet in the first place. Do they really think people pay up to $70 / month to check email and the like? ISPs need to invest in their networks...not try to monetize traffic flows...

Many people have already heard about the libertarian billionaire businessmen brothers Charles and David Koch who have helped to found and/or fund a number of non-profit organizations and think tanks. {...}

What many people may not be aware of is the number of academic centers/institutions that the Kochs are also helping to fund at both public and private colleges and universities—including {} the Mercatus Center, a conservative think tank located at George Mason University in Virginia. {...}

Thomas McGarity, a University of Texas law professor who specializes in environmental issues, described the [Mercatus Center's] strategy: “You take corporate money and give it to a neutral-sounding think tank,” which “hires people with pedigrees and academic degrees who put out credible-seeming studies. But they all coincide perfectly with the economic interests of their funders.”

In a public comment to the U.S. Environmental Protection Agency on vehicle emissions, the Mercatus Center suggested that global warming would be, "beneficial, occurring at night, in the winter, and at the poles. If a slight warming does occur, historical evidence suggests it is likely to be beneficial, stimulating plant growth and making humans better off.

(emphasis mine)

I don't say this often...because I'm all for free speech and differing opinions but:

I don't say this often...because I'm all for free speech and differing opinions but:

Dafuqq are you talking about!?

What does any of this have to do with the topic at hand?

If you read the article, I'm not sure why I confuse. This article discusses a study by the Mercatus Center. My comment discussed the ulterior motives of studies put out by the Mercatus Center. Further, the author notes his affiliation with the Mercatus Center:

Quote:

Disclosure: The Mercatus Center paid me to contribute a chapter to a new book on copyright reform. Readers can view my full disclosure statement here.

Make sense now?

{edit: just to clarify, I'm not in any way suggesting that Tim Lee, the author of this article, is being duplicitous or on the take.}

For the record, the two fundamental goals driving the entirely Koch-funded Mercatus Center referenced in this article

I don't say this often...because I'm all for free speech and differing opinions but:

Dafuqq are you talking about!?

What does any of this have to do with the topic at hand?

To venture a guess, I suspect metavirus holds the opinion that the Mercatus Center (and any Koch funded academic enterprise) will provide precisely the results (& detailed supporting documentation of methodologies, etc.) that the Koch boys pay them to provide. Consequently, all Koch funded work product is automatically suspect & cannot be considered credible without independent peer review.

Given the extent to which Timothy Lee's text relies upon a Mercatus study for it's salience, one would be safest to NOT wager their life savings on any conclusions, implicit or inferred, from within this article.

I happen to think that this article probably provides a pretty fair & accurate representation of "reality". I also wholeheartedly agree with & support metavirus, if my suppositions are indeed correct. The Koch's are of the most reprehensible ilk that depend on the Faux Fantasy Factory's ability to dismiss fact, inflame rhetoric, & spread FUD amongst the masses, thereby diverting attention from those who truly are striving to subvert democracy in the U.S.

Hell, the Kochs have purchased practically the entire population of currently elected officials throughout the state of Kansas, & they have no intention of stopping there.

Edit: simply to say that by the time I got around to clicking "post your comment" meta V had already done gone & spoke up his own self....apologies

I think the meta-discussion raises some important points for ArsTechnica to consider in the future:

1. Should analysis articles be solely based on a single source of information? 2. Should an author on its own publish an article from a source where he/she has a relationship with? Is it not better, as a matter of principle, to have a second author on these kind of articles? 3. Would it not be worthwhile to investigate this phenomenon of special interest driven research and the impact they have on society/policy?

still find it silly that you get charged for Receiving an SMS in the USA (unless that has changed?) anywhere els in the world the Sender gets charged for sending it not receiving it (as the sender has all ready paid for that)

but charging more for sending just data then it goes out side to international pipes seems not it not help but hinder expanding

still find it silly that you get charged for Receiving an SMS in the USA (unless that has changed?) anywhere els in the world the Sender gets charged for sending it not receiving it (as the sender has all ready paid for that)

but charging more for sending just data then it goes out side to international pipes seems not it not help but hinder expanding

I find it silly anyone gets charged at all. It costs them as close to nothing as you can get without going into negative values. And yet the charge for sending them has only gone up.

I think it's legitimate for readers to be concerned about conflicts of interest, which is why I disclosed my Mercatus connection. To provide a bit more detail about it, a friend who works there, Jerry Brito, approached me to ask that I contribute to a book of libertarian perspectives on copyright law. I'm a freelance writer, and they paid me about half of what I would have made if I'd devoted the same amount of time to writing stuff for Ars. But I thought it was a worthwhile project with the opportunity to convince the right-hand side of the political spectrum to adopt more sensible copyright laws.

I don't understand how the connection to the Koch Brothers is relevant. Obviously, if this were an article about climate change that would be a concern. But as far as I know, the Kochs don't have any financial interests in telecom issues. And I don't know who Mercatus's donors are, but I suspect there's more money on the pro-sender-pays side of the fence--AT&T, Verizon, etc.

The unfortunate reality is that a lot of the most interesting tech policy research is done at institutions with funding from interested parties. Google contributes significant sums to the Berkman Center, the New America Foundation, and other left-leaning organizations that we regularly cover. As far as I can recall, readers haven't complained when we've covered their studies and quoted their scholars. If we avoided covering organizations with financial ties to interested parties, we'd miss some of the most important conversations in the policy process.

Thanks for the replies. Just to clarify, I don't have any basis to question this particular study per se. My overall point is that the Mercatus Center and several other think tanks like it have shown themselves to have a core agenda to basically shill for the interests of the billionaires who fund them. the important point to consider is that the mercatus center obviously needs to surreptitiously establish credibility, by accurately researching seemingly unrelated subjects, in order to have any real chance of influencing the policies they are most interested in promulgating. I don't think Tim is on board with the center's ulterior motives. However, in professional circles we're evaluated by the company we keep. This isn't a simplistic question of guilt by association. But it is important to pay attention to the groups and organizations that we lend our reputations and credibility to, in order to try to prevent them from using us to build a veneer of respectability in order to then go forth and push the underlying agenda we didn't sign on to. The Koch brothers are behind billions of dollars of dirty energy interests in this country who want to abolish the EPA, strip away all environmental regulations and kill any meaningful attempt to address climate change. Over the years, the Mercatus Center (which is entirely funded by the Koch brothers) has consistently shown itself to be, surprise!, a vocal and strident fighter for environmental deregulation and killing any attempt to address climate change. Not a coincidence, and certainly something that should call into question the motives behind (but not necessarily the results of) any of the other seemingly banal studies they produce.

Thanks for the replies. Just to clarify, I don't have any basis to question this particular study per se. My overall point is that the Mercatus Center and several other think tanks like it have shown themselves to have a core agenda to basically shill for the interests of the billionaires who fund them. the important point to consider is that the mercatus center obviously needs to surreptitiously establish credibility, by accurately researching seemingly unrelated subjects, in order to have any real chance of influencing the policies they are most interested in promulgating. I don't think Tim is on board with the center's ulterior motives. However, in professional circles we're evaluated by the company we keep. This isn't a simplistic question of guilt by association. But it is important to pay attention to the groups and organizations that we lend our reputations and credibility to, in order to try to prevent them from using us to build a veneer of respectability in order to then go forth and push the underlying agenda we didn't sign on to. The Koch brothers are behind billions of dollars of dirty energy interests in this country who want to abolish the EPA, strip away all environmental regulations and kill any meaningful attempt to address climate change. Over the years, the Mercatus Center (which is entirely funded by the Koch brothers) has consistently shown itself to be, surprise!, a vocal and strident fighter for environmental deregulation and killing any attempt to address climate change. Not a coincidence, and certainly something that should call into question the motives behind (but not necessarily the results of) any of the other seemingly banal studies they produce.

A libertarian institute wants to get rid of the EPA? Is this really off course for a libertarian institute? I'd be more concerned about a progressive think tank advocating lower taxes.

Despite common misconceptions not all Libertarians are global warming deniers and puppy killers. Many just don't like how the EPA handles regulation in general. The agency has a huge tendency to legislate based on politics and not actual science.

Holding back things like nuclear and shutting down coal plants. While other groups fight against solar/wind/hydro installations for NIMBY reasons.

This is why libertarians rail against the EPA. If we can't have coal or natural gas then give us nuclear. The issue of climate change doesn't suddenly change our power demands.

As far as pollution if there was a real system of property rights the Koch brothers would have their asses handed to them on a regular basis in court. Every lawyer in the country would jump on the case in a heartbeat.

Adam M wrote:A libertarian institute wants to get rid of the EPA? Is this really off course for a libertarian institute? I'd be more concerned about a progressive think tank advocating lower taxes.

Despite common misconceptions not all Libertarians are global warming deniers and puppy killers. Many just don't like how the EPA handles regulation in general. The agency has a huge tendency to legislate based on politics and not actual science.

Holding back things like nuclear and shutting down coal plants. While other groups fight against solar/wind/hydro installations for NIMBY reasons.

This is why libertarians rail against the EPA. If we can't have coal or natural gas then give us nuclear. The issue of climate change doesn't suddenly change our power demands.

As far as pollution if there was a real system of property rights the Koch brothers would have their asses handed to them on a regular basis in court. Every lawyer in the country would jump on the case in a heartbeat.

The EPA is only one, and I would argue less important, component of the issue. The more insidious and I think substantially more indefensible part is the Mercatus Center's and the Koch's efforts to repeal, defang and oppose strong environmental legislation. They want to repeal or substantially defang laws like the clean air and clean water act. They want to block any kind of meaningful legislation to tackle climate change. Just look that the dirty energy lobby's successful partnership with Dick Cheney to exempt fracking from the provisions of the clean water act (insofar, for example, as stripping the EPA of the authority to asses fracking under the structure of that law). They also promulgate fraudulent garbage like I cited above about climate change possibly being good for the planet on balance. Those are much more serious underlying agendas than quibbles over various EPA regulations that may or may not have been implemented optimally. I actually view the EPA qualms (be because there are many valid common sense complaints) to be part of the front they maintain to hide their more radical agenda.B

I suspect that you, like me, are of the rational set of libertarians who rightly view things like the clean water act as laws that protect people from having their rights infringed upon by polluters. Because that is fundamentally the key point behind libertarianism: focusing on protecting people from having their rights infringed upon, and avoiding government action that improperly penalizes people for participating in private acts that don't infringe upon the rights of others or have serious negative externalities (eg laws banning sodomy and misguided marijuana prohibition).

I'd be curious to know why Canada is such an outlier from this trend...

Canada is stuck in a 3 year term model for cell phone contracts, where most of the rest of the planet is 2 year.

Only the US has 2 year terms I believe. Most of the rest of the planet buys their phones. The 3 year term was to offset cost of a $800 cad phone, when the dollar was $0.80/US dollar. Now it makes less sense but it is still there. A iPhone is $179 with contract instead of $199 and we get an upgrade 6 months before our contract is finished. It's not quite as bad as it sounds.

Timothy B. Lee / Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times.